Climate Bill: Where to from Here?

Manik Roy, vice president for federal government outreach, co-wrote this post.

By all indications, the climate bill is done for the year. A casualty of … well, you’ve been hearing the blamefest.

So what’s next?

Unfortunately, none of the problems we sought to fix with the climate bill have been solved by ignoring them.

Power companies and businesses still need to know what carbon emission requirements lie ahead of them before investing millions of dollars in new equipment – especially for carbon capture and sequestration, nuclear power, renewable energy, energy efficiency, and other low-carbon alternatives.

China and other countries are still investing heavily in clean energy and leaving us behind in the global race to dominate the clean energy market.

The United States is still dependent on oil from countries that do not have our best interests at heart.

And, oh yes, climate change is still real, still happening now, still largely caused by human action, and still presenting our children and grandchildren grave economic and environmental risks if we do not reduce our carbon emissions now.

Those urgent problems have only become more urgent, and therefore only tougher to solve. On top of that we’ll have a new Congress next year with many new Members who will likely be less eager to make tough choices on this issue than those they replace. So what comes next?

The primary question is the choice of policy approach. Should we continue to pursue a flexible market-based approach to reducing emissions, now that an outrageous, and yet outrageously-effective, PR campaign has convinced much of the American public that emissions trading – a policy approach warmly embraced and successfully used by both the Reagan and first Bush administrations – is the spawn of the devil and the equivalent of taxation? Or has the cap-and-trade brand been fatally damaged?

If so, maybe we should just go to a straight carbon tax, since a public that has been taught to hate “cap-and-tax” will surely embrace a tax.

Just kidding about that one.

Another option is subsidies for low-carbon technologies, whether in the form of grants, loans, loan guarantees, or tax cuts. (Note that tax cuts are essentially subsidies funded by all the other taxpayers.)

Two problems here. First, an adequate level of government subsidy will be hard, if not impossible, to generate when we have a huge government deficit. Second, and more subtle, is that government subsidies involve government employees, whether in Congress or the executive branch, choosing between technologies. Sometimes they choose wisely. But sometimes they don’t. And when they don’t, they are not especially good about identifying or rectifying their mistakes.

The option we’re left with, unless we can breathe real life into one of the above, is EPA regulation under the Clean Air Act. To develop a performance standard, for example, EPA would identify the technologies that pollute the least for a given industry sector and require all companies in that sector to pollute no more than if they used those best demonstrated technologies. Though performance standards do an adequate job of setting the floor, they tend not to reward efforts to perform above the floor, and hence tend not to advance technology. They also tend to be much more expensive than market-based approaches like cap-and-trade.

It sure seems like back to the future, but if they’re all we’ve got, we’ve got to use them or the hole we’re in will keep getting deeper.